Global private equity firms, which first invested in Vietnam’s top conglomerates like Vingroup and Masan, are now increasingly venturing into the smaller deals territory as the country’s technology ecosystem gets more mature, according to panelists at a country-focused discussion at the Asia PE-VC Summit 2021 organised by DealStreetAsia last week.
“It is a broader emerging market phenomenon,” said Conrad Tsang, chairman & co-founder, Strategic Year Holdings Limited, a Hong Kong-based private equity firm that has increased its investment activity in Southeast Asia.
He said a lot of PE funds were traditionally doing large-scale buyout deals in developed markets, and then into the more mature parts of Asia, like Singapore or Hong Kong, Japan, Korea and Australia. But, thanks to attractive fundamentals, they are increasingly interested in these emerging Southeast Asian economies, which as recently as five years ago, were called frontier markets.
“Now people don’t call Vietnam a frontier market anymore,” he emphasised.
Strategic Year has invested in Vietnamese education startup TEKY Holdings. The firm is spending more resources and time in markets like Vietnam, Indonesia, Cambodia, the Philippines, and in cross-border opportunities.
Speaking on the theme, Quang Pham, who oversees Vietnam as well as other SE Asia markets for Crescent Group Capital Management (Crescent Point), said, the shift by larger PE firms looking for opportunities in smaller deals ($20-25 million) in Vietnam has created more “competition.”
Crescent Point had invested $36.2 million in Vietnam’s integrated children’s lifestyle platform N Kid Corporation in 2019.
Among recent deals in the Vietnamese tech space involving PE majors, B2B startup KiotViet secured $45 million from KKR along with Jungle Ventures. Early this year, M-Service, the company behind Vietnam’s largest e-wallet by users MoMo, raised over $100 million in a Series D fundraising round co-led by Silicon Valley investor Goodwater Capital and existing backer Warburg Pincus.
In 2019, TA Associates has announced a minority stake investment in Vietnamese software provider MISA Joint Stock Company.
Even Vietnam’s homegrown Vietnam Investments Group (VI Group), one of the largest country-focused PE firms, is looking at allocating around 40% of its new fund corpus towards tech investments, as reported by DealStreetAsia earlier.
What is driving the shift in investment approach is the quick adoption of tech seen in Vietnam.
“We can see that companies are shifting gears into tech businesses or rewiring their business models to add more tech elements. Up to 15% of the country’s corporates are taking steps towards a full digitalisation,” Pham added, citing Vinasa data.
Crescent Point is, however, does not look for pure-tech venture investments but at proven business models with technology as an enabler, Pham emphasised.
Vietnam, which is at an inflection point in many ways, has been seeing a lot of investment activity but it has yet to deliver a major exit [for investors], according to homegrown e-commerce platform Tiki group president and CFO Richard Trieu Pham.
Tiki, which is widely seen to achieve the unicorn tag in the near future, is likely to list in the US, the market that offers depth for large tech offerings. He, however, pointed out that the road to listing and becoming a public company came with its own set of challenges such as compliance to US regulatory requirements, quarterly reporting, among others.
On Vietnamese tech companies seeking the IPO route, Tsang said, “I see huge potential for Vietnamese companies to follow the path as some of their peers elsewhere in the world,” he said.
“For some of the bigger companies, tech companies, definitely, the US would be a logical choice to access international capital. But I also want to make a point is that Hong Kong Stock Exchange may be another venue that sizable unicorns would like to consider.”
Apart from the macro drivers and accelerated tech adoption, Vietnam’s strength lies in its talent availability and cheaper labour costs.
The local talent is recognised by peers in the region, Tsang said. The other advantage for Vietnam is access to a 100-million population, $300-400 billion home market.
“Our advice to them [startups] would be you penetrate your market first. If you can saturate your market, hold a sizable market share, you’re already working with a $300-billion economy,” he said.
Armed with that, companies can foray into neighboring markets such as Cambodia, Laos, or even in Myanmar, the other frontier parts of Southeast Asia.
Pham from Crescent Point, meanwhile, pointed out that most Vietnamese companies are at a nascent stage in their development, with a majority of them below 15 years since their inception.
“It’s fair to comment that the private sector of Vietnam is very young in comparison with its neighboring countries. And that explains why we have not seen many Vietnamese companies crossing the border yet,” he added.